Super trustees must consider and disclose climate risk

OPINION | The chorus of expert opinion on climate risk has been strengthened by a new legal opinion from Noel Hutley SC and James Mack who conclude that there is an “inherent harmony” between the financial risks posed by climate change, and the financial interests of superannuation fund members.

Furthermore, Hutley and Mack find that “climate change risks can and should be considered” by super trustee directors, particularly when “making a significant investment decision related to investments that are exposed to climate change risk”.

Market Forces commissioned Hutley and Mack to provide their expert legal opinion. Their memorandum builds upon the view of the Australian Prudential Regulatory Authority (APRA), which sent shockwaves through the finance industry earlier this year, when executive board member Geoff Summerhayes described climate-related risks as “distinctly financial in nature” and that “many of these risks are foreseeable, material and actionable now”.

In June, the Financial Stability Board’s Task force on Climate-related Financial Disclosures (TCFD) published its final recommendations saying that “climate-related risks are or could be material risks for many organisations”. The TCFD recommended that asset owners like super funds should provide “climate-related financial information” to members, “so that they may better understand the performance of their assets, consider the risks of their investments, and make more informed investment choices”.

Yet despite the weight of expert opinion, super funds have not exactly been rushing to disclose climate-related information to their members. Market Forces found that 82 of Australia’s 100 largest super funds provide little or no tangible evidence of climate risk management. 60 of those funds provide no evidence at all, and 22 disclose just a single mention of climate change in an Environmental, Social and Governance (ESG) policy.

In fact, reference to an ESG or Sustainable Investment policy is the most common response by super funds to member enquiries about climate risk.

Far too often, members concerns are waved away as an ethical issue, rather than a financial one. To appease these members, many funds have created or modified ‘ethical’ or ‘socially responsible’ investment options that are ‘low carbon’ or ‘fossil fuel free’. This may satisfy the more ethically minded investor, which is typically a vocal minority, but it does nothing for the vast majority of members invested in default options. How is climate risk being managed for those members? Well, they wouldn’t know, because most funds don’t tell them.

Disclosure is not the superannuation industry’s strong point. Market Forces’ research in 2016 found that 84 per cent of all fund assets were undisclosed – equating to $1 trillion of investments. Not much has changed since, and ASIC has recently delayed mandatory portfolio holdings disclosure for another 2 years. By the time this comes into effect, 10 years will have passed since the Cooper Review made its recommendations. Talk about glacial change.

If members don’t even know what their fund is invested in, how can they “consider the risks of their investments, and make more informed investment choices”?

In 2014, seven super funds acquired a stake in the Port of Newcastle – ACSRF, AustSafe Super, BUSSQ Super, Energy Super, Meat Industry Employees Super, QIEC Super and Sunsuper. The Port of Newcastle is the largest thermal coal export terminal in the world, but most of those funds’ members wouldn’t know. Only Energy Super discloses the investment.

The coal sector is arguably the most vulnerable sector to transition risk. Perhaps it’s time those funds disclosed as much to their members.

Daniel Gocher is an analyst and campaigner with Market Forces, an activist organisation that produces research and promotes collective consumer action to put pressure on banks and superannuation funds to divest from fossil fuel producers.

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